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IPO annual meeting panel spars over fairness of current IPR system
BlogPTABWatch

Welcome to all of you who are new readers joining us from the IPO Annual Meeting (#IPOAM15). I hope that your time in Chicago was enjoyable and that you will add us to your RSS feeds or bookmark the blog and return often. For those who were unable to attend, the Tuesday panel titled “Post Grant Proceedings at the USPTO” offered a wide-ranging, lively discussion of the current state of post-grant proceedings and proposed solutions to perceived weaknesses in the current system.

Former PTAB Chief Judge James Smith started off the program with a summary of recent statistics, which seemed strategically chosen to counter those critics that have dubbed the PTAB the “patent death squad.” He emphasized that the number of patents challenged in AIA filings is miniscule when compared to the volume of patents issued in that same time period. When discussing the monthly rate of filed petitions over time, he asked the audience to put themselves in the shoes of the PTAB judges as they quickly saw that the preliminary estimates of filing rates were exceeded within months of the implementation of the program.

Among the cited statistics, about 63% of the petitions filed in post-grant proceedings were for electrical or computer technology. Also, patent owners have waived their preliminary responses only about 20% of the time, although Former Chief Judge Smith noted that nothing could be gleaned from these numbers about the strategic effect of doing so.

Judge Smith offered statistics current as of July 31, 2015 showing trial has been instituted on 827 petitions, with 447 trials completed, and over 400 terminated due to settlement, dismissal or request for adverse judgment. In 295 of those 447 completed trials, all claims were found unpatentable. In 81 of those completed trials, results were mixed, with some claims being unpatentable and some surviving. In 71 of the completed trials, all challenged claims survived. The list below summarizes the same results looking on a claim-by-claim basis, instead of by petition.

The patents involved in IPRs contained 38,000 claims.

Of those claims, 17,675 were challenged in an IPR.

Trial was instituted against 11,114 claims.

4496 of those claims were found invalid.

More current statistics published by the Patent Office are available at this link, and are frequently updated at this link. Regardless of which set of statistics one considers, the inescapable conclusion is that, once trial is instituted, the patentee loses something through the process 92% of the time! Specifically, each settlement or request for adverse judgment results in the patentee giving up something it was otherwise not going to relinquish but for the trial. Moreover, the patentee has been adjudged to have at least one claim canceled in the overwhelming number of completed trials. Thus, it is not difficult to see right through the seemingly balanced statistics presented.

Denise DeFranco, 2014 President-Elect of the American Intellectual Property Law Association, then addressed appeal statistics, noting in particular that there has not been a single complete reversal by the Federal Circuit of an IPR or CBM decision, and that the vast majority of the court’s decisions have been Rule 36 summary affirmances.

With that context, the panel began with a discussion of the concerns raised by patent owners that the original institution procedure allowing petitioners to submit testimonial evidence but limiting the scope of material that patent owners could present in the preliminary response created an advantage for petitioners and resulted in an unlevel playing field. Former Chief Judge Smith explained that the purpose of the original rule was to prevent essentially having two trials, one to determine if instituting the second trial was warranted. DeFranco countered that the procedure forces patent owners to respond essentially with two hands tied behind their backs. In particular, it is difficult to forcefully respond to claim construction, enablement, and obviousness arguments when a party cannot submit a declaration from one of ordinary skill in the art. DeFranco explained it would be more fair not to allow anyone to submit testimonial evidence at that stage than to allow it to proceed as a one sided process. Richard Rainey from General Electric Co. emphasized the importance of the institution decision, expressing the view of patent owners that once trial is instituted, your claims are going down. That view is supported by the statistics discussed above.

DeFranco added the perspective that institution is the “be-all, end-all” not only with regard to the IPR proceeding, but also in connection with any co-pending district litigation which is likely to be stayed at that point, thus taking away any momentum that the patent owner had in the pending case. Former Chief Judge Smith analogized the institution procedure to a motion to dismiss in district court, adding that it would be his expectation that most petitions should meet that standard and shame on any petitioner who cannot. He emphasized that the patent owner always gets the chance to present its evidence, the only question is the timing of when that evidence comes in. The rule changes proposed in August address these concerns by expanding the evidence that a patent owner may submit, but deciding any factual dispute that is material to institution in the petitioner’s favor solely for purposes of that institution decision.

Turning to the question of whether institution decisions should be made by the full panel of three judges, by a single judge who would later serve on the merits panel, or by an individual who would not be on the panel making the final decision, the panelists ultimately seemed to conclude that the current use of the three judge panel is the right result. The patent owners initially expressed some concern that the one-sided evidence presented at the institution stage could create an unfavorable initial impression of the patent claims and ultimately bias the decision on the merits. Former Chief Judge Smith again analogized to the motion to dismiss scenario, pointing out that no one ever asks for a new district court judge because the assigned judge has denied a motion to dismiss and, in doing so, may have indicated some view about the end result. As an advantage to the three judge system, he explained that extreme views of any one panelist would be countered by inclusion of the other two in the decision-making process.

The panel next took on the claim construction standard – should the PTAB apply BRI (Broadest Reasonable Interpretation) or the district court Phillips standard? Tony Baca from Hewlett-Packard, Co. cited Judge Newman and her position that IPRs are different from prosecution and, thus, it makes sense to use a different standard. However, he noted that the PTO seems to be more comfortable applying BRI, which makes sense in light of the longstanding use of that standard during prosecution, reexamination, reissue, and interferences. The panel explained that the ability to amend claims in IPR, which is frequently cited as the reason that BRI should be applied, may be largely illusory because district court litigation is usually involved and any amendments could negatively impact the litigation—thus, patentees are not interested in amending claims. Rainey brought common sense to the table, explaining that non-lawyers (and particularly business people and inventors) never understand how the meaning of a claim term could change depending on where the claims are being interpreted. Shouldn’t a claim mean what it means? The moderator, Henry Hadad, from Bristol-Myers Squibb, agreed with that viewpoint. He explained that a patent is a property right and should have set boundaries that can be described to business people to help them make decisions about that property right. Former Chief Judge Smith agreed that use of a non-BRI standard would be fine, but observed that there would be a practical problem in abandoning the BRI standard in PTAB proceedings. In many instances, there are related continuing applications pending in the Patent Office that are being examined under the BRI standard. He felt that Congress may need to make a change to keep the selected standard consistent everywhere.

In the final topic before turning to questions, the panel addressed the standard for amendment of claims. Former Chief Judge Smith stated that if one were to study all of the motions to amend, you would conclude that those motions were not denied because the standard is too rigorous or page limits were too onerous, but because the proposed claims were deficient. Patent owners presented amended claims that lack antecedent basis or added claim limitations that still fail to avoid the prior art or in some other way created a basis for defeating the motion in the way that the amended claims were drafted. DeFranco pointed out that the current procedure for moving to amend, in which a decision comes at the very end of the process, is not particularly useful. She recommended that the PTAB provide a decision on amendment early in the case. Former Chief Judge Smith, with all due respect to those who worked hard in drafting the AIA, questioned how carefully the process for amending claims was considered by Congress. He noted that there is no examination procedure contemplated in the legislation. DeFranco advocated that a process similar to that used in European Oppositions may be more effective.

In his closing remarks, Chief Judge Smith asserted that the PTAB is properly implementing the process as set forth by Congress. If patent owners are concerned that the PTAB is invalidating patents unduly, perhaps the problem lies in the system that has been implemented by the AIA. He suggested that the most effective solution for changing that result would be to switch the standard of proof from a preponderance of the evidence to the clear and convincing standard currently implemented in the district courts.

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